Adani Energy Solutions Ltd

NSE:ADANIENSOL

Q1-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to Q1 FY '26 Earnings Update Conference Call hosted by Adani Energy Solutions Limited. From the Adani Energy Solutions side, we have the following on the call as main speakers. Mr. Kandarp Patel, CEO, AESL; Mr. Kunjal Mehta, CFO, AESL; Mr. Anupam Misra, Head, Group Corporate Finance; Mr. Vijil Jain, Head IR, AESL; Mr. Kapil Sharma, CEO of Transmission AESL; Mr. Pushpendrasinh Zala, CEO, Smart Meter AESL. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Vijil Jain from AESL. Thank you, and over to you, Mr. Jain.

[Vijil Jain, executive]

Thank you. Good morning, good afternoon. Thank you so much, everyone, for joining in. I just hope that you've got a chance to go through the earnings material uploaded on the website. Just to very quickly explain the flow of the call. So we will start with an opening remark from the CEO, Mr. Kandarp Patel, followed by a Q&A session and then the closing remarks from Mr. Kunjal Mehta, the CFO. And if you have any follow-up -- any questions, you can join the queue in advance so that we can manage the Q&A in a better way. And lastly, let me just now hand over the call to Mr. Kandarp Patel, CEO, for opening remarks. Thank you, sir. Over to you, sir.

[Kandarp Patel, executive]

Thank you, all investors and analysts friends for joining this call. We are pleased to share that AEML has reported another good quarter in terms of financial performance and operational performance, highlighting AESL's strong on-ground execution and focus on O&M. The company continues to focus on unlocking the tied-up growth through timely completion of transmission projects, ensuring stable performance in distribution segment and also maintaining industry-leading daily smart meter installation run rate.

I'll give you a few key highlights from quarter 1. So we secured a new transmission project during this quarter called WRNES Talegaon transmission project. We also commissioned 3 transmission projects in this quarter. One was Khavda Phase 2 Part-A. The second was Khavda Pooling Station. Both these projects are in Gujarat. Those are interstate projects. And the third one is Sangod transmission project, which is intrastate project in Rajasthan. With this new project, Talegaon project, our under construction order book stands at about INR 59,300 crores.

With the smart meter, in fact, we made a significant progress during this quarter on the lines of guidance that we had at the beginning of the year. We installed about 24 lakh meters during this quarter, which has taken cumulative number to 55.44 lakh meters. With this, we are poised to achieve our target of 70 lakh meters during the current year. So this was the main issue around smart metering installation rate, and we have been able to achieve this kind of rate successfully over a period of entire quarter.

As far as CapEx progress at consolidated level is concerned, this year, we did a CapEx of INR 2,224 crores as compared to [ INR 13 crores ] in last quarter -- last year quarter, which is about 1.7x of the CapEx that we did in last quarter. Most of the CapEx has come from transmission and smart metering. The growth in CapEx has come from these 2 segments, whereas distribution CapEx in AEML has remained stable.

Now moving on to operational and financial performance. Operationally, also, we have done exceedingly well. We have achieved availability of 99.8%, which has also enabled us to earn an incentive of INR 29 crores. Now with these 3 new projects getting commissioned, our total network -- transmission network now stood at about 26,696 circuit kilometers.

As far as distribution is concerned, the demand remains stagnant in AEML, essentially due to early onset of monsoon. However, our Mundra distribution company, the sales growth was 22% year-on-year, which was basically due to increase in industrial demand in Mundra region.

As far as distribution loss is concerned, we continue to improve our performance. This quarter, our distribution loss stood at 4.24% as compared to 5.18% in first quarter last year. In fact, with this level, we are one of the most efficient as far as T&D losses is concerned, not only in the country, but we are also comparable with the global benchmark.

As far as smart metering is concerned, as I mentioned, we already commissioned 24 lakh meters in this quarter, which is totaling -- now total installed meter is about 55 lakh meter. Out of 55 lakh meter, 51 lakh meter has already commissioned and revenue has started coming from this 51 lakh meter.

As far as C&I business is concerned, we have been talking that we'll be focusing on this business. Now with all our efforts and team in place, we have commenced that C&I business. Now we have 14 big industrial and commercial customers, aggregating a total load of about 717 megawatts that we are catering to. So C&I -- you will see a lot of action on C&I front in AESL.

Similarly, in cooling business, we have also made a start there. We are building India's largest district cooling facility at Mundra with a capacity of 45,000 tonnes of refrigeration. So with that total capacity that we are implementing currently is 52,000 tonnes of refrigeration. And we are also talking to various developers, and you will see significant action in cooling solutions business as well.

As far as financial update is concerned, the total income has rose by 28%. EBITDA has increased by 14 percentage year-on-year, which now has crossed INR 2,000 crores. It is INR 2,017 crores as compared to INR 1,762 crores last year quarter 1. PAT also increased significantly. It increased by 71% year-on-year to INR 539 crores. That was essentially because of increase in EBITDA and lower depreciation and tax outgo.

The cash profit has also improved significantly. Now it has crossed INR 1,000 crores this quarter as compared to around INR 900 crores in last quarter. As far as outlook is concerned, all the 3 -- 4 businesses, we see a significant opportunity, be it transmission, distribution or smart meters.

In transmission, we are already having an order book worth of INR 59,000 crores. And we also expect bidding of about INR 90,000 crores in coming time, which includes even 2 large HVDC projects. So we see a significant opportunity there as well.

As far as distribution is concerned, while we continue to do the expansion or growth in AEML, the way we are doing, but we also see opportunity there. There are privatization discussion happening in UP. And also our second license application for Navi Mumbai came up for hearing last week. So we see action on that distribution side as well.

As far as smart metering is concerned, we will continue to focus on implementation. And we would want to achieve the number of 70 lakh and more during the current year. And with this kind of exposure and experience, we would certainly want to maintain our market share of about 22 percentage in future opportunities as well.

So with all these things, I think, in AESL, there is a significant amount of opportunity in all the business verticals and our team is fully geared up and that can be seen from the results that we will continue to focus on execution and managing those assets well and efficiently.

So now we can go to Q&A session.

[Operator]

[Operator Instructions] The first question comes from the line of Mohit Kumar with ICICI Securities.

[Mohit Kumar, analyst]

My first question is on the smart meter. I think you mentioned that we have roughly around 55 lakh smart meters as we speak. And in the quarter, we did 24 lakh, right? Is it fair to assume that by the end of this year, into this fiscal, we'll have more than 1 crore smart meters installed? And can you please help us with the revenue run rate which you expect from the smart meter in FY '27 based on this 1 crore installation?

[Kandarp Patel, executive]

Mohit, you are always the opening batsman in our session. With this execution run rate, we are fully confident that we will be going beyond 1 crore smart meters installation by the time we complete this financial year. In fact, we could have done a little better in the current quarter, but the unexpected rain in May affected our progress. But even with that, we continue to have a daily average of about 27,000 meters. And with that, we will be easily completing that 1 crore target that we have taken for ourselves.

[Mohit Kumar, analyst]

And sir, the revenue run rate from the smart meters in FY '25?

[Kandarp Patel, executive]

Yes. Mohit, so roughly, we continue to give you the guidance that the revenue would be based on the meter month based on the number of meters as and when they get installed. So roughly, each meter month would give us a revenue of about INR 100 per meter per month. Even in this quarter, the 55 lakh meters actually translates to about 106 meter month. And 106 meter month -- on a meter month concept would translate to a revenue of about INR 115 crores in this quarter.

I mean we are not reporting segment numbers for the smart meters. But I think in the going-forward basis, we intend to do that. But for this quarter, on a meter month basis, the revenue earned is INR 115 crores. Under the Ind-AS and the accounting treatment, the revenue classification is different. But from a conventional perspective, I can share that INR 115 crores is the per meter per month -- per meter per month revenue for this quarter.

[Mohit Kumar, analyst]

And this is on top of the lump sum payment that you get?

[Kandarp Patel, executive]

No, this includes.

[Mohit Kumar, analyst]

And sir, is there any update on the smart meter ordering from -- tendering for Tamil Nadu? Has it happened? Has it completed?

[Kandarp Patel, executive]

No. So Tamil Nadu bid has been getting extended. In fact, they also revised the bid document a couple of times. Now they are again planning to go ahead with the bidding process. But still, the Tamil Nadu bidding has not happened.

[Operator]

[Operator Instructions] We have the question next from the line of Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

Sir, 3 questions on my side, on the HVDC pipeline like Mumbai, -- Mumbai, [indiscernible], the Aarey to Kudus, I think we're working on Phase 2, right -- Phase 2? Are you expecting this work to commence somewhere in this fiscal or next fiscal? Or are you still waiting for the approval?

[Kandarp Patel, executive]

So as far as Mumbai HVDC is concerned, in fact, the project is progressing very well, and we expect to commission the Mumbai HVDC project during this financial year itself which is Phase 1. We have already requested STU for evaluating whether Phase 2 will be required or not because in their scheme of things, it will be required. So now we are asking them as to when STU thinks that, that project should be operational. Now this is the study and analysis, that project will be progressing ahead. But as of now, we won't be able to tell you as to when that approval will come time line. But that project certainly will be a certainty because they have already taken that project into their long-term plan.

[Mohit Kumar, analyst]

Understood, sir. And the last question on the revenue side for this quarter for the transmission. Sir, I think we had last year, we added one project in -- one project, one TBCB. And last quarter, we added 3 more, right? So put together, I think we have added around INR 38 billion, INR 39 billion of asset in Q1 FY '26. But the revenues are flat in this quarter for transmission. Can you explain the anomaly what led to that?

[Kandarp Patel, executive]

No, you are right. So basically, the key reason for the flat revenue is -- so one is that, of course, as the CapEx completes and the project gets commissioned. This quarter, we have actually done an additional transmission revenue of INR 66 crores. But what happens is that in certain assets, which is the traditional projects, which are cost-plus assets, there is a depreciation factor. And since the depreciation reduces, the cost plus asset or the revenue also translates to a lower number. So therefore, in case of certain cost-plus assets, the revenue declined, which in this quarter, unfortunately, the transmission earnings on account of new projects got commissioned offset that revenue. So INR 66 crores of new revenue was there on account of new projects that got completed, but it got offset by the higher depreciation charge on the cost-plus assets, which are historically with the company.

[Operator]

[Operator Instructions] Next question comes from the line of Anuj Upadhyay with Investec.

[Anuj Upadhyay, analyst]

Sir, off late we have been listening a lot of concerns related to the commissioning of the transmission project, which actually is leading to delay in the execution of renewable capacity. Just want to get your thought process on this, what actually is delaying the project? How we are progressing in case of Khavda and other power projects? And what are the major bottlenecks which are leading to this kind of a delay?

[Kandarp Patel, executive]

So Anuj, you must have noticed we commissioned 2 transmission projects relating to Khavda in this quarter. And in fact, both the projects got commissioned prior to their scheduled date of commissioning. So as far as our projects are concerned, we are progressing. In fact, in all the projects, we are more or less on time, except on 2 projects, which is NKTL and WRSR. NKTL, we know the reason. But that project and even WRSR is also on the verge of commissioning. So all our projects are going on time and schedule.

Even HVDC, we are going to commission in this year itself. That will be a landmark for Mumbai region. No project has commissioned -- got commissioned in such a short time frame in Mumbai region. As far as renewable evacuation is concerned, there you are right. There are certain projects of other developers got delayed. It has impacted evacuation of renewable power, both in Rajasthan region as well as in Khavda region. So -- and the main difficulty which is being faced in the sector is obviously in equipment. But nowadays, the larger issue is not equipment, but it is the ability of skilled manpower for stringing and erection of the tower.

[Anuj Upadhyay, analyst]

Got it, sir. So we don't face this concern since majority of the project is what you are trying to say?

[Kandarp Patel, executive]

Yes. So we have set up our project implementation in such a way that we don't face these challenges. We are also trying various ways of mechanizing these operations. So your dependability on manpower reduces there. And we are also undertaking a lot of training to create new pool for such manpower requirement.

[Anuj Upadhyay, analyst]

Got it, sir. Secondly, sir, you mentioned about the upcoming INR 90,000 crores of an opportunity in the transmission bids, which are lined up. Can you set a time line by when can the tender be floated? Also, you mentioned 2 HVDC projects are also included in this INR 90,000 crores. What would be the quantum of this, sir?

[Kandarp Patel, executive]

So this INR 90,000 crore project should get bid out in around one year time. And 2 HVDC projects are one for Khavda, that is Khavda-Olpad and another one is for Rajasthan.

[Anuj Upadhyay, analyst]

And the value? Sir, value for it?

[Kandarp Patel, executive]

So Rajasthan project would be around INR 25,000 crores and this Olpad would also be around INR 20,000-odd crores.

[Anuj Upadhyay, analyst]

Okay. Okay. And lastly, sir, on the smart metering. So I believe we still sit at around close to INR 2.2 crores of an order book, which we have in the smart meter space. And our target was to reach it -- I mean, scale it up to around INR 6 crores over the next 2 or 3 years kind of a time period. So any update or status on that because if the projects are not getting added, I mean, the fresh orders. So in that case, how do we target to attain that INR 6 crore mark?

[Kandarp Patel, executive]

So Anuj, the fact remains that still about 12 crore meters are to be bid out. There are many states who has not taken an initiative. We feel that once the positive results from various states where smart metering has been being implemented -- start flowing in, probably those states will also take up those smart metering projects. Meanwhile, what we are doing, we are focusing on our execution. So we wanted to finish as early as possible our existing order book. So this year, we will at least complete 70 lakh and reach to 1 crore plus meter. And next year, we plan to complete the balance part. So -- and we are confident that during this period, 1.5 years, the states which are pending for bidding, those all states will -- the opportunity will come up.

[Anuj Upadhyay, analyst]

Okay, sir. And which are these states, sir, who are likely to come up for the smart meter bid in the near term or the likelihood for which would be more positive [ upside ]?

[Kandarp Patel, executive]

So part of the Madhya Pradesh, Telangana, Karnataka, Tamil Nadu, those are the big states which are still having a smart metering opportunity.

[Operator]

Next question comes from the line of Dhruv Muchhal with HDFC AMC.

[Dhruv Muchhal, analyst]

Sir, continuing the Mohit's question on transmission revenue, despite commissioning, we are not seeing that run rate. So you mentioned that there is a INR 66 crores drag because of the -- broadly INR 66 crores drag because of the depreciation adjustment as per the regulatory accounts. So is that correct, sir?

[Kandarp Patel, executive]

INR 66 crores is the addition on account of new project that got commissioned. That got [indiscernible] on account of the depreciation.

[Dhruv Muchhal, analyst]

So broadly INR 60 crores or INR 70 crores will be the depreciation impact on revenue? So depreciation is lower and it's INR 58 crores.

[Kandarp Patel, executive]

INR 58 crores to be precise on depreciation and INR 66 crores on account of increase in revenue on account of new projects commissioning.

[Dhruv Muchhal, analyst]

Okay. So if my understanding is right, this does not impact your PAT. It just impacts your EBITDA and revenue because your depreciation is lower, your EBITDA is also lower, your revenue is also lower, correct?

[Kandarp Patel, executive]

Correct. Correct.

[Dhruv Muchhal, analyst]

And sir, this impact should be for the full year or part of that was already there in the base year I mean, in FY '25 and this part of it is continuing, I mean...

[Kandarp Patel, executive]

Yes. Next quarter, you will see all the projects which were commissioned during the last 3 or 4 quarters, full revenue will start coming in during the future quarters. So therefore, this will not repeat in the new quarters -- I mean, in coming quarters.

[Dhruv Muchhal, analyst]

Yes. I mean, on a Q-on-Q basis, it will not reflect. But Y-o-Y basis, it will still reflect?

[Kandarp Patel, executive]

Correct.

[Dhruv Muchhal, analyst]

Got it. Got it. And sir, are there any other meaningful such projects where there is a regulatory adjustment pending? I mean probably I think 12 years get over and hence after that, you see a big dip in depreciation. Is that right?

[Kandarp Patel, executive]

So these are -- in all cost-plus assets, it will happen that way only. So this was happening in the earlier 2 lines, which were there where 12 years got completed. So because of that, the depreciation impact got [indiscernible]. Now most of the projects are on tariff base. So you will not see such type of impacts going forward.

[Dhruv Muchhal, analyst]

Okay. So majority of the drag is already behind now as we have completed that 12 years project. And sir, I wanted to -- probably you mentioned about C&I that you have started. I wanted to understand in deep. I'm not sure if that's the specific time. But if you can share how the economics for the C&I business will work for you? How do you plan to scale it up? What load that you are targeting? What kind of customers that you're targeting? And yes, some thoughts there.

[Kandarp Patel, executive]

So Dhruv, essentially, the concept here is that we will provide an end-to-end energy solution to the customer. And we will take full responsibility of not only cost but also reliability. And creating a right mix for that customer in such a way that they achieve their ESG target as well as their cost is optimized. So we started with our cement business, and we did an excellent contribution there in terms of reduction in energy cost. Now we have started with third parties as well. And there are total 13 consumers where we are providing these services, 14 industrial customers in fact. And the total load currently is about 770.

The bouquet of services will increase as we will contract out those energy storage capacity, then our ability to serve their RTC load will increase significantly. And once we have that storage capacity contract out with us, we'll be able to scale it up very fast because we will not only be able to offer them a larger share of green power as compared to the existing distribution supply, but we will also be able to reduce their cost. So our target is to achieve about 7,000 megawatts by -- in another 5 years.

[Dhruv Muchhal, analyst]

And sir, your economics is the cost at which you purchase minus the cost at which you sell, right? So you do a PPA with your -- you do -- I'm not sure buying agreement with some of the developers, including with the developers and you have a selling price, probably fixed selling price with your customers. So how does the...

[Kandarp Patel, executive]

There is one fundamental difference. Normally, when you talk of trading, usually, you must have seen Dhruv, back to back contract. What we will be doing is aggregation of the capacity. And from aggregate capacity, we'll be offering a customized solution. So in our case, we will hardly see any back-to-back or a mirror contract, whereby you only earn trading margin. So that will be a significant difference there.

[Dhruv Muchhal, analyst]

So basically, similar to a DISCOM, how our DISCOM operates, it's kind of a similar structure for C&I customers.

[Kandarp Patel, executive]

Correct.

[Dhruv Muchhal, analyst]

Got it. And sir, the price at which you sell to the customer, is it a fixed price or it changes. Is it a discount to what the alternate cost, let's say, for example, the customer could be buying from a DISCOM. So how does the price move?

[Kandarp Patel, executive]

So it depends on the customer requirement. There are certain contracts where we commit upfront price to them. There are certain customers who wants a solution where the price is linked to distribution companies tariff, and we are open for both.

[Dhruv Muchhal, analyst]

Sir, you see largely in terms of the scale up because 7,000 is a large number over 5 years in context of the C&I market, that's why. The open access rules, the restrictions by DISCOMs, the issues that they used to raise earlier, I'm not sure banking rules and all those, they are reasonably sorted out for you to scale up?

[Kandarp Patel, executive]

Yes, yes. Dhruv, all those complications, we will manage. And that is what the differentiation between what we are offering in C&I as compared to all other players. Now our having exposure of running a distribution company, running a green project and all those regulatory knowledge that we have accumulated over a period of time, we will leverage those resource and knowledge and provide them. Because at the end of day, those customers won't be able to understand this kind of complexity of our power sector. And there, our role will be significant. For them, it will be one point solution, and we will do everything for them.

[Dhruv Muchhal, analyst]

Got it. And sir, just last question on this point is, will most of the customers be interstate connected customers, I mean, very large interstate connected or you can also work with intrastate customers?

[Kandarp Patel, executive]

We can also work with intrastate and interstate as well.

[Operator]

Next question comes from the line of Aditya Trivedi with Nepean Capital.

[Aditya Trivedi, analyst]

So the guidance for FY '26 as far as the transmission business CapEx is concerned was INR 12,000 crores to INR 13,000 crores. And this quarter, we've done about INR 1,025 crores of transmission CapEx, which is nearly 9% of the targeted CapEx. So are you on track to meet the targeted CapEx for the year? And also according to the CEA data, the quantum of transmission line addition in the first quarter of FY '26 was less than 20% of the planned additions. So what have been the reasons for a decline in capacity addition for the industry?

[Kandarp Patel, executive]

So Aditya, we are more or less on the track. But yes, some impact has happened because of unexpected monsoon in May. But we have realigned our plant, and we are confident that we will fulfill our guidance for the current year. As far as the performance at the country level is concerned, you will see almost every year, the addition during the first quarter is much less as compared to the last quarter of the year. That is the reason one. And obviously, rain has affected all other players as well. Besides that, the shortage in manpower essentially for erection and stringing that has also caused the dip in the performance in the sector.

[Aditya Trivedi, analyst]

Okay. And as far as the transmission tender pipeline stands at about INR 90,000 crores. So what is your target win rate? And are you seeing more competition now from private players?

[Kandarp Patel, executive]

I don't think competition landscape will change either positively or negatively much during the next year. In fact, there is all the reason that intensity should reduce because the project tender pipeline in the sector are a good number. In fact, with almost all players, there are sufficient capacity available for implementation. And we will also be very, very disciplined as far as taking up a new project is concerned. We will be taking those projects where we feel confident of executing in time, both in terms of execution and from OEM supply side. And also that is within our financial metrics and parameters that we have decided for ourselves.

[Aditya Trivedi, analyst]

Got it. And one last question is that AEML's operating EBITDA declined 7.6% year-on-year, and this is despite improved distribution loss metrics. So what are the underlying cost pressures? Or have there been some regulatory changes driving this? And is this decline structural or transitory?

[Kandarp Patel, executive]

So the distribution loss, whatever improvement that I do in distribution loss, it doesn't contribute to my profitability. The advantage of reduction in distribution loss goes to a customer. But just to add, I mean, on a year-on-year basis, if you recall, last year, we had Dahanu power plant. This time, we don't have it. And that's the reason -- one of the reasons why on a year-on-year basis, you will see a flat growth. So despite there being a growth -- underlying growth on account of addition of CapEx because Dahanu power plant not being there this quarter, that's the reason why you have an operating revenue flat in -- even in distribution business.

[Operator]

Next question comes from the line of Nikhil with UTI Mutual Funds.

[Unknown Analyst]

Just a couple of questions. So earlier, did you mention what is the contracted C&I capacity -- contracted C&I addition -- sorry, capacity that you have as on date?

[Kandarp Patel, executive]

As on date, we have 770 megawatts.

[Unknown Analyst]

770 megawatts. And what would be the ticket size of the customers -- average ticket size?

[Kandarp Patel, executive]

So these are ranging from 5 megawatts to 150 megawatts.

[Unknown Analyst]

And sir, I mean, 2 years back, we have seen a new apply for licensing -- parallel license across a few cities. And all of a sudden in the last 2, 3 months, we have seen the activity pick up over there. So I mean, can you just guide us as to what is happening in the space? And what is the realistic time line for this parallel license getting awarded?

[Kandarp Patel, executive]

So we applied for parallel license in Maharashtra as well as UP and also in the Gujarat expansion of our MUL license area. The thing progressed well initially in Gujarat and Maharashtra and then that remained pending for quite a long time with the commission. In last week, MERC held a public hearing. Now the order is reserved, which is the last step in license grant. So we see that there should be a decision from MERC very soon.

As far as other states are concerned, we are not sure about time line because it is pending with them since long time. But from a legal standpoint, I don't see any opportunity -- any issue because this is -- our application is in line with legal requirement. So someday, they will have to clear that application. I'm not sure as to when that can happen.

[Unknown Analyst]

Understood. I mean -- and how would this parallel license exactly work? Will you be using existing infrastructure and paying some commission? Or would you be setting up your own intra?

[Kandarp Patel, executive]

So we have to -- the legal requirement is that when you become a second license, you have to set up your own network. You can't use the existing network. And accordingly, when we applied for Navi Mumbai, we gave a detailed rollout plan to MERC as to how are we going to set up and expand our network in Navi Mumbai area. And we gave a rollout plan for 5 years, and we mentioned as to how we will progress from area to area wise.

[Unknown Analyst]

Okay. So you won't be getting into existing areas, but likely to expand in newer areas. You are basically targeting the existing areas, but maybe you would like to get into the undeveloped areas basically, where there is no existing...

[Kandarp Patel, executive]

No, no, no. We will be going in all the areas -- in the entire distribution license area that will be granted. And we will develop a network in that area gradually, area by area. So we will pick up one area, complete the entire network there, then we'll go to another parcel, then we will go to another parcel. That is how we'll be doing.

[Unknown Analyst]

I have a few questions regarding the economics of it, but I will get back.

[Operator]

Next question comes from the line of Jalaj Manocha with Svan.

[Jalaj Manocha, analyst]

Hope, I am audible?

[Kandarp Patel, executive]

Yes.

[Jalaj Manocha, analyst]

Congrats on scaling up the smart meter business so well. Just wanted to understand the unit economics around it. Could you please explain the unit economics. What is the initial CapEx and who pays and how long is the tenure?

[Kandarp Patel, executive]

So the initial CapEx is roughly in the range of around INR 4,500 to INR 4,800 per meter, and we get based on the tariffs which we have quoted which is about INR 11,000 over a 93-month period.

[Jalaj Manocha, analyst]

Okay. And the eventual payment will come from the respective -- from the government regulator, in this case, the DISCOM or what, who pays eventually for it?

[Kandarp Patel, executive]

It is paid by the DISCOM, but it comes directly from the customer's wallet as the consumers who are paying to the DISCOM on a monthly basis for the power which they are consuming. From that wallet itself, it comes directly into our account.

[Jalaj Manocha, analyst]

Okay. So the payment risk is not there as such in this front?

[Kandarp Patel, executive]

Correct.

[Jalaj Manocha, analyst]

Got it. And sir, on the -- just one other part was the C&I. I just wanted to understand, would we be keeping the trading margin in it? Or how does it work in it? Because we would do a back-to-back arrangement with the GenCo is what my understanding is as you explained. So could you explain...

[Kandarp Patel, executive]

Jalaj, what we will not do is a back-to-back arrangement. Our way -- because see, we will have to offer a customized solution to each of the customer and it would be very, very different from customer to customer. So the model here is we will contract different capacity. We will aggregate it and make a customized solution for each of the customer from that aggregate capacity. And when you are procuring power, there is a huge amount of opportunity created when you aggregate the capacity, which is not there in a back-to-back basis. And essentially, we genuinely feel that when you are doing a back-to-back arrangement, you are hardly adding any value there.

[Operator]

Next question comes from the line of Shirom Kapur with Jefferies.

[Shirom Kapur, analyst]

I just wanted to ask on your transmission business, what are your capitalization targets for FY '26 and FY '27?

[Kandarp Patel, executive]

So the capitalization essentially would mean that once the project gets completed, the underlying asset gets capitalized. So this year, roughly around INR 15,000-odd crores of projects are likely to get capitalized, which includes the largest one being the Mumbai HVDC project. We will continue to maintain that run rate of close to around INR 15,000 crores, INR 16,000-odd crores of capitalization to get completed each year. As you know that the company has close to INR 60,000 crores of projects, which are to be completed in the next 3 to 4 years.

[Shirom Kapur, analyst]

Understood. And from this Mumbai HVDC, how much is the value of this project specifically?

[Kandarp Patel, executive]

[ 10,000 ].

[Shirom Kapur, analyst]

Got it. And just on your C&I business, I just want to understand how much is the revenue and profit contribution in this quarter and in FY '25 to your overall business?

[Kandarp Patel, executive]

This quarter, it's not that significant. In fact, this was the first quarter where we actually started early. But on a number basis, it's around INR 18-odd crores, which was earned during this quarter, largely from the C&I business.

[Operator]

Next question comes from the line of Dhruv Muchhal with HDFC AMC.

[Dhruv Muchhal, analyst]

I missed -- in interstate market, it seems the bidding activity has slowed down a bit. Is it just because you're absorbing all the bids or because of the -- I'm not sure because of the execution challenges, they are waiting and watching. So just trying to understand what's causing this slowdown -- somewhat of slowdown?

[Kandarp Patel, executive]

Dhruv, the bidding slowed down not because of execution challenge or anything else, but there were a few deliberation happened at CEA and CTO level that was regarding some regulatory issue. And also they wanted to have a relook at the way the transmission system has been planned and designed. So they wanted to review it. And having done that, now you will see that bidding happening the way it was happening earlier.

[Dhruv Muchhal, analyst]

So no major change in terms of the path that the system was taking earlier and now after the review of the design?

[Kandarp Patel, executive]

Yes, yes. No major change. In fact, if I can share that, they undertook an evaluation whether HVDC should be implemented or a battery storage should be implemented. Having done the detailed study, they now decided that the system that they have planned, they will continue with that. And therefore, now you will see the bidding happening. In fact, one HVDC bid -- initial bid has already been submitted. Now the bids are under technical evaluation. And maybe in months' time, they will do the reverse auction.

[Operator]

[Operator Instructions] Next question comes from the line of Mahesh Patil with ICICI Securities.

[Mahesh Patil, analyst]

Sir, my first question is on the Khavda Olpad HVDC. So this is the one you mentioned that the bids have been submitted, right? And the awards should be done in the next 1 or 2 months, right?

[Kandarp Patel, executive]

Correct.

[Mahesh Patil, analyst]

Okay. And sir, on the other opportunity at the intrastate level, say Maharashtra, there is some news coming that they are also doing some large amount of transmission CapEx, including HVDC. So how do you see the opportunity? Any discussions going on, on that side?

[Kandarp Patel, executive]

So Mahesh, not only Maharashtra and as we discussed over various calls, we see a lot of opportunities coming now from state sector. So Maharashtra has already started. Two projects have been -- got under auction in last month. We see a couple of more projects in a month's time. Similarly, Karnataka also has come out with a few projects under TBCB. Even Rajasthan has approved significant amount of transmission project under TBCB. So we see a lot of projects and opportunities coming for transmission from various states now.

[Mahesh Patil, analyst]

Okay, sir. And sir, one question is on the C&I side. Typically, what is the lock-in period for the contract that you have with the customers?

[Kandarp Patel, executive]

So currently, few contracts are for 13, 14 months. And there are 2, 3 contracts, which is a long-term contract, which goes up to 10 years as well.

[Mahesh Patil, analyst]

Okay, sir. And sir, last question is on the 3 other projects apart from Mumbai HVDC that you are planning to commission this year. Any time line next 6 months or something that you are planning to -- these projects are expected to come online?

[Kandarp Patel, executive]

So the way things are progressing, we should be commissioning somewhere in the later part of January or February. But before this year-end, pretty sure.

[Mahesh Patil, analyst]

Okay, sir. And sir, lastly, on the Mumbai HVDC, the part 2 that you mentioned, Phase 2, any estimate about the cost or let's say, comparatively to the earlier Phase of INR 70 billion? Do you have any estimate?

[Kandarp Patel, executive]

So it would be very, very premature even to find out the cost today because we are not pretty sure as to what is the kind of configuration that they will decide. Besides the HVDC, there might be connected GIS or substations. So once the scope is clear, then probably we'll be able to figure out as to what would be the estimated cost. But obviously, it will be around INR 10,000 crores considering the current market situation in HVDC market.

[Operator]

Next question comes from the line of Bhavik Shah with Invexa Capital.

[Bhavik Shah, analyst]

So you mentioned in your opening remarks about the 45,000 tonnes cooling facility at Mundra. Can you throw some light on that business? What is the opportunity? What are we looking at? And what exactly could be the potential?

[Kandarp Patel, executive]

So Bhavik, this concept itself is developing in the country. So theoretically, all the AC requirement can be converted into district cooling. So it is certainly a humongous opportunity. But this concept is very, very useful and could be very efficient when cluster development is happening and of a mixed use. So take any development where multiple buildings of residential, commercial and other things are developing. This could be a very, very good concept because you get cooling as a service. You don't have to invest into those AC and managing and maintaining those AC. And when you have an aggregation and this big size of plant, which is distributing cooled air, you also get a lot of optimization and efficiency.

So essentially, when you have a district cooling plant, your energy efficiency will improve by at least 20 percentage. So -- but yes, this concept will -- we strongly feel that this concept will get a lot of traction in coming times in India as well. Like in Middle East and other developed countries, the district cooling is the normal concept. It's a normal phenomenon there.

[Bhavik Shah, analyst]

Understood, sir. And sir, has it anything to do with the data centers which we are building? Are we going to use it there? Or how is it?

[Kandarp Patel, executive]

No, the data center can also be one of the end use, but it could be anywhere, like so any new development that is happening, the district cooling could be a good concept. In fact, we are talking to various -- a few developers, a big developer in Pune, Hyderabad as well as Chennai, where cluster development is happening. So the things have progressed very well there. And we see that getting replicated everywhere else as well.

[Bhavik Shah, analyst]

Understood. Sir, regarding the depreciation of old assets. Sir, so this trend will continue, right, for the projects or assets which we have? So eventually, the new income will get -- continue to get offset going ahead, right?

[Kandarp Patel, executive]

No. So this will not continue to happen because earlier the projects were awarded on a cost-plus basis. Now most of the projects are awarded on a fixed tariff basis.

[Bhavik Shah, analyst]

Okay. Understood. And sir, like how do we see the impact of the ISTS charges? Like will we be impacted? Or how is generally our terms with the customer?

[Kandarp Patel, executive]

Are you talking about C&I or transmission?

[Bhavik Shah, analyst]

Sir, transmission.

[Kandarp Patel, executive]

So transmission...

[Bhavik Shah, analyst]

C&I...

[Kandarp Patel, executive]

Sorry?

[Bhavik Shah, analyst]

In fact, both the cases, you can help us understand.

[Kandarp Patel, executive]

Okay. So as far as transmission business is concerned, we have no connection with the ISTS tariff, which is being charged to distribution company or customer. Essentially, how it operates that all the transmission charges of all interstate transmission assets gets aggregated and that aggregated costs get allocated to all the customers. So depending on how much new transmission capacity is getting added, how much -- how many are getting depreciated basis that the interstate transmission charges keep on varying. So as far as transmission business is concerned, there is no linkage with the ISTS transmission charges being charged to distribution company or end consumer.

In the C&I, obviously, it can impact. But now with the new transmission charge regime in place, which is [indiscernible ]. So there, irrespective from which source you are taking power, the transmission charges payable remain the same. In the sense, whatever that average transmission charge works out at a country level, that will be applicable to him.

[Operator]

Next question comes from the line of Vishal Periwal with Antique Stockbroking.

[Vishal Periwal, analyst]

Sir, in the call, you did mention like in the transmission side, we are seeing opportunity. So out of this INR 90,000 crore worth opportunity, which you mentioned, so what would be like the breakup between center and state out there? And sorry. And second parallel to that, this opportunity -- I mean, are you seeing moving more towards the state in the last couple of quarters? And how unlikely it is?

[Kandarp Patel, executive]

So Vishal, this 20,000, almost 90% currently is from interstate. The only few -- 2 states have recently started. But you are right. As we move forward, we see the pie of interstate project getting bigger as compared to what we have today.

[Vishal Periwal, analyst]

Okay. Got it. And then just from an economics point of view, the central -- interstate and the state one, does this really differ when we are bidding and when we start earnings from these assets?

[Kandarp Patel, executive]

No, I don't think it differs because conceptually both are same. What only differs is your counterparty. In the state, it is STU, whereas in interstate, it is CTU.

[Vishal Periwal, analyst]

Okay. Okay. Got it. Got it. And in terms of even the numbers of players who are bidding, they are largely limited because in central, we do have seen like a limited set of players?

[Kandarp Patel, executive]

So state, it will be further less number as compared to interstate.

[Vishal Periwal, analyst]

Okay. Okay. Okay. And then one last thing. Sir, in terms of segmental that we report, one, where do we club our smart meter business?

[Kandarp Patel, executive]

So smart meter currently forms part of the others listing. We are not showing separately smart meter as a segment because it still is slightly nascent. Going forward, as I mentioned earlier, going forward in the future quarters, smart meter will also be showing in a separate segment.

[Vishal Periwal, analyst]

Okay. So in others, when we see a sharp increase on a year-on-year basis, so that is primarily driven by -- as we are commissioning more smart meter? Or is there any other revenue that is coming -- forming part of the others?

[Kandarp Patel, executive]

So that is because of the SCA income because of the -- as the construction income increases, the service concession arrangement income also increases.

[Vishal Periwal, analyst]

Okay. And then will that be a number handy with you, sir? I mean this could be how much this -- the construction service?

[Kandarp Patel, executive]

So this quarter, the number was INR 178 crores, INR 133 crores on account of transmission assets and INR 45 crores on account of smart meter assets.

[Operator]

Next question comes from the line of [ Vinod ] with [ Phillip Capital ].

[Unknown Analyst]

Sir, I just wanted to ask you about this in recent NCT ruling in the last meeting -- minutes of last meeting, they have stated that for every HVDC project, you should have a comparable calculation with BSS. But are these 2 strictly comparable in that sense? Can BSS actually replace a transmission line? And even if you have a BSS, you still require transmission capacity, right, to transmit that power from the battery storage systems?

[Kandarp Patel, executive]

So answer is yes and no, both. Now you can certainly reduce requirement of additional transmission capacity when you have a battery storage co-located with a renewable generator. So today, if you see that if I have a 10,000 megawatt of solar power plant, I will require a 10,000 megawatt equivalent transmission capacity. But if I store half of the capacity, then probably I might require 5,000 megawatt capacity. Because solar generates during 8 hour where the 10,000 megawatt is being used and rest of the time, it is not being used.

So if you have a battery storage, you can obviously use that capacity -- transmission capacity during non-solar hour. So it can certainly reduce the requirement of transmission capacity. But it is also not -- your point is also valid that to a certain extent, you will require the transmission capacity, may not be to the fullest extent, but obviously, you will require transmission capacity a little more than what capacity comes after consideration of battery storage.

[Unknown Analyst]

Okay. Okay. But it will reduce the demand for high-voltage system. Would that be a right way to look at it?

[Kandarp Patel, executive]

Yes. It can optimize the requirement for transmission system -- new transmission system at least.

[Unknown Analyst]

And sir, the other thing is, I think the NCT also calls for, I think, technology-agnostic HVDC project now. How would that work? Because ultimately, who decides whether it should be NCT or BSE? Is the developer or it is NCT?

[Kandarp Patel, executive]

So currently, it is being decided by the planner. So it is basically NCT, CTU and CEA. There is a discussion around this point that should it be kept open and leave it to developer to decide as to which technology will be better for -- given the transmission requirement.

[Unknown Analyst]

No. But now they are saying it will be agnostic and the developer gets to bid, right? You can bid either on an LCC costing or a VSC costing depending on.

[Kandarp Patel, executive]

It has not happened so far. That's under discussion.

[Operator]

Next question comes from the line of Anuj Upadhyay with Investec.

[Anuj Upadhyay, analyst]

Just to get an update on the UP DISCOM side, where exactly are we in the stage of this tender, where the bids have been submitted and when we can expect the final outcome to be out? Secondly, there's a lot of buzz around that the DISCOM has been spread into price circle. So any update which you can provide would be helpful, sir.

[Kandarp Patel, executive]

So Anuj, by this time, the RFP should have come out, it has yet not come out. We expect that RFP to come out soon. And then those bid submission and evaluation and award will happen. So what we have understood is the discussion is going on between UPRC and government of UP on certain issues relating to privatization. Once they have done a final decision, they should come out with an RFP for initiating the bidding process.

[Operator]

Ladies and gentlemen, due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Kunjal Mehta for closing comments.

[Kunjal Mehta, executive]

Thank you all for taking out the time to attend the call. Just to remind anybody, in case of the paucity of time, if we have not answered any clarification or any questions, we are just a phone call away. You can reach out to us for any additional information. Thank you all. Thank you once again for the call.

[Operator]

Thank you. On behalf of Adani Energy Solutions Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.